This invention relates generally to the field of education, and more particularly to a method of teaching financial management and accounting principles.
In the modern economy, the principles of accounting play an integral role in the management of every type of financial enterprise. This includes private businesses, as well as non-profit, public, and government organizations. Accordingly, the managers of the various enterprises need to have a good understanding of these accounting principles and their related bookkeeping concepts. Moreover, it is important that their understanding not be limited to knowledge of just the dry mechanics of the topic, for example, the technical terms xe2x80x9cdebitsxe2x80x9d, xe2x80x9ccreditsxe2x80x9d, xe2x80x9cbalance sheetsxe2x80x9d etc. Rather, it should also include a natural and intuitive understanding of the meaning behind the concepts. In this way, the various accounting terms could be meaningfully related to fundamental day-to-day management concerns, such as cash flow and profits, for example. This would allow for better managment decisions.
What is often overlooked is that it is also beneficial for lower-level employees to acquire a similar understanding of accounting principles and concepts. For example, the sales staff in many organizations have a tendency to discount the price of product to generate increased sales volume. What is often not realized is that this practice can have an adverse effect on the organization""s profitability, particularly where there is only a moderate or marginal increase in sales volume. Alternatively, sales may be boosted by granting overly liberal credit terms. This could be profitable, but leave the company drastically short of cash and unable to meet its current liabilities. However, if the sales staff were to acquire a solid and intuitive understanding of basic accounting principles, they may be less likely to engage in these counterproductive tactics and more likely to pursue productive ones. For example, they might be more inclined to generate sales by promoting the product""s benefits rather than a low price, and might be more judicious in granting of credit.
Another example is that employees may be dissatisfied with their level of pay or size of their annual bonus. This can lead to a corrosive atmosphere, particularly where there are a large group of such employees, for example, production workers in a large manufacturing operation. The employees may feel that the organization has the means to pay more, but is unfairly suppressing their compensation. This perception however may be inaccurate, as the employer may in fact be only marginally profitable, notwithstanding the large sums that pass through the organization. Again, training the employees in basic accounting principles and concepts may provide them with the insight to understand the reality of the situation. Further, it may prompt some consideration of measures that could be taken to improve profitability, and thereby provide a basis to support a genuine increase in income.
Thus, having a common understanding of accounting principles among all members of an organization leads to better communication, a smoother running organization, and an improved ability to work together to achieve enhanced benefits for all.
In practice, while there are many books and courses on the subject, the principles of accounting and basic business concepts are still not well or widely understood. The problem is that a good understanding of how money flows in and out of a business requires an appreciation of the interrelationship between different accounts and bookkeeping entries. These are technical, abstract concepts which can be difficult to convey using books or traditional lecture methods, which generally require the student to keep a number of abstract concepts, functions, and sums organized in his or her head.
As a result, accounting knowledge tends to be concentrated among those who have dedicated extensive study time to the topic, such as for example, financial executives. Managers of other areas of an enterprise, lower-level employees, and entrepreneurs may therefore lack the conceptual understanding of accounting principles that would optimize their contribution. Further, given the limited time available to busy working people, it is unlikely that any but a small number of these people will find the time to acquire such knowledge using current methods.
There have been some attempts in the prior art to improve upon the traditional teaching methods of accounting by using a game-like structure. For example, Zegel, U.S. Pat. No. 4,142,305, teaches a game board divided into sections corresponding to those that appear on a balance sheet, i.e. xe2x80x9cassetsxe2x80x9d, xe2x80x9cliabilitiesxe2x80x9d, xe2x80x9ccapitalxe2x80x9d, and xe2x80x9cprofitxe2x80x9d. The user places triangular-shaped pieces, oriented up or down to represent increases or decreases in value, on the board, to confirm the accounting equation xe2x80x9cassets=claimsxe2x80x9d. This simulates entry of transactions in a journal. Subsequently the pieces are transferred to various account cards off the board, to simulate posting entries to T-accounts.
The Zegel patent teaches a structure that may assist in the teaching of rudimentary bookkeeping concepts, specifically the concept of debits and credits, journal entries, posting, and balancing of accounts. This may be useful in training a bookkeeper. However, it fails to provide a useful overview of accounting principles, specifically the core accounting documents of a balance sheet and income statement, and how they relate to real-life business decisions. The physical layout can be distracting as well, since it involves having a disparate number of account cards that are strewn about the main game board.
Another patent is U.S. Pat. No. 4,336,019 to Schroeder. This teaches an unmarked game board divided into columns intended to correspond to the balance sheet concepts of assets, liabilities, and owners equity. Cardboard pieces are marked with the name of an account and a numerical amount, and are placed in the appropriate column. The patent teaches how to add the numbers in the two columns to confirm the basic balance sheet equation, xe2x80x9cassets equal liabilities plus owner""s equityxe2x80x9d. This patent teaches only the most rudimentary balance sheet principle. It fails to relate any information about income statements, thereby completely omitting a fundamental component essential to the understanding of how accounting principles affect the financial condition of an enterprise.
Further, both of the Zegel and Schroeder patents present their topic in a dry fashion, being concerned with the technical manipulation of symbols to satisfy bookkeeping requirements. Neither presents a comprehensive overview that relates accounting to important and meaningful business issues.
What is required is a method of teaching accounting that conveys the fundamental concepts in a clear and simple manner. It would be advantageous for the method to be sufficiently efficient so that its educational objectives could be met within a relatively short time, for example, a one-day seminar. This would allow people who are working and otherwise lack the time to take a more extensive course to have the opportunity to acquire a functional amount of accounting knowledge. It would also be advantageous for the teaching method to be able to accept any capable individual as a student, even if the student has had no previous background in the area. This would make the method beneficial not just to entrepreneurs and managers, but also to non-managerial employees, some of whom might have limited educational backgrounds and/or language skills that would otherwise preclude them from participating in more conventional forums of instruction. This suggests that a graphical approach would be advantageous. Lastly, the method should preferably instill in its participants an enhanced understanding of the connection between accounting concepts and business issues, so that the participants will be able to make more knowledgeable and productive business decisions.
Accordingly, there is provided a method of teaching financial management of an enterprise, said method comprising:
(a) providing objects representing a balance sheet and an income statement, and also providing monetary markers, said balance sheet object and said income statement object each having a plurality of accounts;
(b) selecting a predetermined instruction to reflect a predetermined result;
(c) moving the monetary markers among at least one pair of said accounts to increase or decrease the monetary markers in each account for said at least one pair of accounts, in accordance with the selected instruction; and
(d) visually depicting, by the resulting distribution of the monetary markers among the objects, a financial condition of said enterprise.